Thinking about buying a brand-new home? You’re not alone.
According to a joint report by the U.S. Census Bureau and U.S. Department of Housing and Urban Development, about 608,000 newly constructed homes were sold in 2017. This is an 8.3% increase from 2016’s figure of 561,000.
New construction is winning buyers’ hearts over existing homes. A poll conducted by Trulia found that 41% of Americans say they would prefer to buy a newly built home over a previously lived-in home with modern features. In contrast, only one in five buyers (21%) prefer the opposite.
There are a lot of upsides to buying a brand-new home, but there are also some complexities you might not anticipate, especially if you’ve never purchased a newly-built home. Before you start foraging Newhomesource.com to find new construction homes in Los Angeles, check out these tips for both realtors and home buyers.
For Realtors
If your client has expressed interest in new construction, here are three points to keep in mind.
1) Research the builders and projects in your area
Residential builders are generally divided into two categories: production builders and custom builders. In general, production builders construct multiple homes and/or condominium projects at the same time. On the other hand, custom builders generally construct an entirely unique single-family home based on a design produced by an architect in conjunction with the buyer or even without a buyer in mind (also referred to as spec building). Production-built homes can be more affordable and contribute to a stronger “neighborhood” feel, but custom homes can be tailored to a buyer’s needs.
No matter what type of home your buyer is considering, research each builder’s previous work and look for testimonials. Review the state licensing board and the local court records to see whether the builder has any prior legal trouble. This might include lawsuits, complaints with licensing agencies, or disciplinary actions by state and local agencies.
2) Get to know the property firsthand and review the broker co-op requirements
Start by visiting the development project yourself first. Doing so will give you a chance to familiarize yourself with any requirements and procedures, especially if you’re looking at a property that’s part of a co-op. For example, this might include registering your client with the development’s co-op board. But proceed with caution. Some production builders do not permit broker fees — which means no commission for you–some only have ‘referral fees.’ Find out which applies to you, then register your buyer before inviting them to the property.
3) Get comfortable with the complexities of new construction contracts and supporting documents
Most production builders do not use the California Association of Realtors (CAR) forms. Instead, they use custom contracts for new construction, which can be quite complex. It makes sense to have an expert who specializes in new construction review your client’s contract before signing. If you’re not familiar with these contracts, a qualified attorney can review and highlight any issues that could affect your buyer.
For Home Buyers
If your heart is set on new construction, here are a few tips to keep in mind as you hunt for your dream home.
1) Ask about warranties & know your rights
Most builders offer warranties on workmanship, and California Senate Bill (SB) 800 requires a certain level of warranty on all new homes. SB 800 is a state law that outlines when and how builders are responsible for construction defects on new homes and establish a process for homeowners to hold builders accountable.
This law applies to single-family homes and condominium residential construction for purchases after January 1, 2003. It does not apply to ‘true’ condominium conversions. Having this ‘warranty’ is an important distinction from purchasing a traditional ‘re-sale’ or previously built property.
2) Work with a preferred lender with experience in new construction
In selecting a lender, you may want to consider a preferred lender. This special category of lender may be able to save you time and money when buying new construction. Generally, a preferred lender has already ‘pre-approved’ the property, is familiar with new construction in general (along with all the financing details), and can help guide you through the mortgage process.
3) Cross-examine your realtor about the contract and all the supporting purchaser documents, or homeowners association (HOA) documents
Does your realtor already have an attorney she likes to work with? Have they represented other buyers in this project or in other new construction projects? Has she read your contract cover-to-cover and all supporting documents? Can she explain both the purchase contract and other purchaser documents in simple English so that you fully understand it?
It is your realtor’s responsibility to disclose mandatory pre-approval, mortgage approval dates, presales, and close on time clauses in your contract. Unfortunately, builders do not highlight any provisions in the contract or purchaser documents, including fees. It is your realtor’s responsibility to represent you and disclose all provisions of the documents, including costs and fees.
When you find the property that fits your dream list, come to us, the experts in escrow. Escrow of the West strives to offer the highest level of service, accuracy, knowledge, professionalism and genuine care. View our escrow services or call us at 866-444-5560.
